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Top 4 RESP Mistakes to Avoid

When you open an RESP for your child, you’re doing a great thing. With record level student debt, saving towards your child’s education early on means he or she won’t have to tackle the debt alone. RESPs offer many benefits – government grants, tax-sheltered growth, and taxable income in the hands of your child, to name a few. However, RESPs aren’t without their pitfalls. Here are four costly RESP mistakes parents can make and how to avoid them.

Mistake #1: Starting Your Child’s RESP Too Late

While it’s better to start an RESP late than not at all, starting early has its advantages. Your child’s RESP can grow tax-free for years, benefiting from the power of compound interest. You can also get the most out of  various government grants you could be qualified for, such as the Canada Education Savings Grant (CESG). If you can’t afford to contribute to an RESP right now, it might be worth opening one anyway and asking grandparents, uncles, aunts and other family members to contribute during the interim. It will go a long way to helping your child pay for his or her post-secondary education in the coming years.

Mistake #2: Setting your child’s RESP on “autopilot”

Don’t be guilty of setting your child’s RESP on autopilot. Keeping a close eye on your child’s RESP by checking it regularly can have a lasting effect, as you are kept abreast of all news related to your child’s account. An RESP is a tax-sheltered investment account. By staying on top of your child’s RESP, you’ll be able to take advantage of additional benefits, like topping up your plan to ensure you’re getting the government grants you’re eligible for.

Mistake #3: Forgetting regularly whenever there is additional disposable income

If you’re regularly contributing to your child’s RESP, give yourself a round of applause. You’re ahead of those who only make lump sum payments every once in awhile with “found money.” While making regular contributions is good, it’s important not forget about your child’s RESP. Reevaluate your budget every few months. If you get a raise at work, consider contributing more to your RESP. Even $5 or $10 more a month can go a long way to paying for your child’s post-secondary education. In fact, Heritage Education Funds have made it even easier for you to avoid this mistake. They’ve launched an innovative new program called the Heritage eGifting program; invite your loved ones to contribute to your child’s Heritage RESP from anywhere in the world, in real time!

Mistake #4: Underutilizing available government grant funds

Many parents are not taking full advantage of government grants and incentives they could be qualified for.  In fact, a recent study by CPA Canada shows that in 2014 although 80% of parents said they were saving towards their child’s post-secondary education, only about 50% of them were actually using RESPs. As a result, they’re underutilizing the government grant funds potentially available to them. Take a look at Heritage’s government grants page to see details about the grants you may be eligible for. When you contribute to an RESP, you can qualify for a 20% government “top up”. By contributing $2,500 per year, you can qualify for the full $500 Canada Education Savings Grant (CESG). That’s a pretty good bang for your buck (the government doesn’t give you a 20 percent grant for contributing to your RRSP or TFSA). If you aren’t contributing the full $2,500, you’re not alone. Parents on average are only contributing $1,500 per child to their RESP — leaving $200 of potential grant funds on the table for not meeting the $2,500 minimum. That means they’re refusing $200 of potential extra funds. Look to your budget for ways to save money, so your child receives the full grant.

These mistakes don’t just apply to RESPs. With the RRSP deadline just around the corner, if you’re making mistakes #2 and #3 with your RRSP portfolio, there’s no better time than the present to fix your mistakes!

Keep up-to-date with all Heritage RESP news at HeritageRESP.com. In fact, did you know that Heritage has created an easy-to-use program to invite your loved ones to contribute to your child’s RESP from anywhere in the world? It’s called the Heritage eGifting program. Check it out here.